Carbon Tax Revenues and Fiscal Multipliers

Resources for the Future issued a report this summer, Deficit Reduction and Carbon Taxes: Budgetary, Economic, and Distributional Impacts. In it, they analyze four revenue-neutral carbon tax proposals: using carbon tax revenues to: (1) reduce capital taxes, including corporate income and personal income for capital investments, (2) reduce personal income taxes and social security taxes, (3) reduce sales taxes, and (4) provide a lump-sum distribution to every adult. They model the effects of each of these separately, and graph the path of the effect of the program on GDP over time, and also, somewhat uniquely, the intergenerational effects of each of the policies, i.e., the effect of each of the four programs on each cohort of people by birth year, reaching out to look at economic effects on the unborn. They then compare each of these with some deficit-reduction proposals, i.e, proposals in which carbon tax revenues simply enter the U.S. Treasury to pay down the national debt.

It is a critically important discussion to have, even if it is politically taboo to even consider a carbon tax that does not somehow recycle revenues. My interest in this blog post, however, is to raise questions about the four revenue-neutral proposals. The conventional wisdom, borne out by this report, is that in terms of effect on GDP, the proposals descend in effectiveness from 1 (capital taxes) down to 4 (annual lump sum distribution to every adult). In terms of trying to reverse the regressive impact of carbon taxes (yes, I am talking about redistribution, that dirty word!), it goes the other way, with 4 going the furthest to not only ease the impact on the poor, but make them better off, and 1 being the most regressive, and in fact making a carbon tax even more regressive.

I try to remain catholic about the value choices implicit in choosing from the 4 revenue-neutral options, and respect the fiscal conservatives that insist that capital taxes are the most growth-maintaining use of carbon tax revenues. But here is the economic question: won't carbon tax revenues recycled back to poor households have a higher multiplier than that recycled back to rich households and corporations? Corporations are currently sitting on huge stockpiles of cash, so if anything, the economic equivalent of disastrously putting cash underneath a mattress would seem to be returning money to corporations. Moreover, we have good reason to suspect that money given to poor individuals gets spent immediately, because of their higher marginal propensity to consume (these people do not have enough as it is) and pumped back into the economy. I am not a macroeconomist, but that sounds right. Mark Zandi at Moody's did an analysis in 2008 looking at multipliers for different uses of federal stimulus money. Below is what his model estimated. I have ranked his hypothetical proposals from highest multiplier to lowest. Proposals highlighted in blue are what I characterize as being close to capital taxes (1), green as labor taxes (2), orange as consumption taxes (3), and red as lump-sum distributions (4):

1.73 Temporarily Increase Food Stamps
1.64 Extend Unemployment Insurance Benefits
1.59 Increase Infrastructure Spending
1.36 Issue General Aid to State Governments
1.29 Temporary Payroll Tax Holiday
1.26 Refundable Lump-Sum Tax Rebate
1.03 Temporary Across the Board Tax Cut
1.02 Nonrefundable Lump-Sum Tax Rebate
0.48 Permanent Extension of Alternative Minimum Tax Patch
0.37 Make Dividend and Capital Gains Tax Cuts Permanent
0.30 Cut Corporate Tax Rate
0.29 Make Bush Income Tax Cuts Permanent
0.27 Temporary Accelerated Depreciation Tax Deduction

The RFF model does not distinguish between households in terms of income or wealth, but rather only has a representative household. This is not to say that using carbon tax revenues to temporarily increase the food stamp program (which has been cut) is literally six times as effective in stimulating spending as a temporary accelerated depreciation tax deduction. But collapsing all households into a representative household seems to me to miss the huge amount of variation in the effectiveness of recycled revenues given to persons of different wealth and different marginal propensities to consume. The pattern shown above seems to bear out what we already suspect about giving money back to people: that money given back to poor people produces a much stronger economic response that money given back to rich people and to corporations.

Can EPA Allow States to Implement a Carbon Tax Instead of Federal Standards?

A recent proposal by Adele Morris of the Brookings Institution suggests that under the forthcoming Obama Administration Clean Air Act rules for existing power plants, the Environmental Protection Agency could, instead of making states implement those rules, allow them to adopt a state carbon tax instead. I think that would be too adventurous an interpretation of this part of the Clean Air Act.

The Obama Administration's rules will be issued under section 111(d) of the Clean Air Act, which is titled "standards of performance for existing sources; remaining useful life of source." In Clean Air Act-speak, "standards of performance" would probably mean an emissions rate, like the one that the Obama Administration has proposed for new fossil fuel power plants. A performance rate standard is generally an emissions limit couched in terms of a maximum amount of air pollution per unit of production. For example, the Obama Administration's new power plant rule dictates that no gas-fired power plant may emit more than 1,000 lbs of CO2 per megawatt-hour produced (which should be easy), and that no coal-fired power plant emit more than 1,1000 lbs of CO2 per megawatt-hour produced (which will be impossible with current technology). But in section 111(a), "standards of performance" is defined as

a standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and any nonair quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.

Does "best system" allow for a carbon tax? I wish it were so (given my book) but I doubt it. For one thing, if a carbon tax were proposed, there would be no guarantee of any specific quantity of emissions reductions at all, since emitters could pay a carbon tax instead of complying with a standard. One could be agnostic about whether this is a good thing, and still realize that legally, this flies in the face of the history of the Clean Air Act. The Clean Air Act was passed in 1970, when Congress was barely aware of even things like emissions trading, let alone emissions taxes. Everything else about Title II of the Clean Air Act has been about rate emissions standards as "performance standards," and only marginally have market-oriented concepts seeped in, like EPA's early (and generally unsuccessful) experiments with "bubbling" or "offsets." For forty some-odd years, EPA and the states have worked with emissions rate standards, and it seems unlikely that it all of a sudden, "performance standards" could mean something completely outside of the Clean Air Act box.

You could argue that once the rules for existing sources get issued, they will be so onerous that states will all of a sudden find themselves embracing a carbon tax. Even the carbon tax knaves would wake up and say, "yes, this is a common sense approach, and an alternative to Obama-Air." Well, that could be, but there will always be someone who doesn't like a carbon tax, some group that will object to it on the grounds that it is regressive, or some emitter that is even more put out by a carbon tax than regulations, and decides to sue. It is my guess at that point, that they would win, and that even a moderately textualist court will strike it down.

Fossil Fuel Corporate America, Waaay Ahead of Congressional Republicans

The Tennessee Valley Authority announced yesterday that in addition to the shuttering of 18 coal-fired power plants they agreed to as part of a 2011 settlement, they will close down an additional 8. But these are 8 large plants in Alabama and Kentucky that account for 3,000 megawatts of capacity, a fifth of the TVA's coal-fired generation capacity, so this is a big deal.

Let us not be naive. TVA, like others, sees the future in cheap natural gas. No green group has done a tenth as much to phase out coal as has the explosion of natural gas development in the United States, an environmentally mixed bag, but a carbon boon. Yet at least publicly, the TVA says that it plans to generate its electricity from a mix of nuclear (40%), coal (20%), natural gas (20%), and renewable energies (20%). TVA cites environmental and economic concerns, and the prospect of greenhouse gas emissions regulations for existing power plants.

But it is telling that the old guard of power generation, the "big dirties," the large investor-owned utilities such as TVA and the American Electric Power Company, are moving ahead even without current binding greenhouse gas regulations or carbon pricing. It is equally telling that they are choosing to get ahead of the curve, rather than pushing the curve back through litigation (though that is always a part of every utlity's policy portfolio). These firms are so far ahead of the conventional wisdom (such as it were) in the Republican Party that you'd think you were talking about Swedish companies and Kenyan politicians. Yesterday, Congressman Steve Scalise, from Louisiana, told EPA Air Administrator Janet McCabe, that she is "not living in the real world." Her delusion, in the eyes of Scalise and his Tea Party compatriots, is that carbon capture technology will help coal-fired power plants comply with forthcoming regulations. The bottom line is that it will be very difficult to build a coal-fired power plant in the United States from now on. But you can count on the fingers of one hand the investor-owned utilities that are planning to build new coal-fired power plants. They do not include the likes of TVA and AEP, and almost all of the large investor-owned utilities. Steve Scalise is very irked on their behalf. Gosh, maybe it's Scalise and his monosyllabic buddies that are a little lost. This dynamic is the kind of echo chamber that has held up Ted Cruz as a hero instead of a laughingstock.

Jonathan Haidt's The Righteous Mind on "Groupish" Behavior, and Clayton Kershaw

I have finished reading, once through, Jonathan Haidt's The Righteous Mind. There is lots of interesting stuff in this wonderful and provocative book, but building on my earlier post about Clayton Kershaw (who has completed his regular season with a league-leading E.R.A. to 1.83, the first time since 2000 that a starting pitcher with at least 180 innings finished a regular season with an E.R.A. of less than 2.00), some of Haidt's interesting work has to do with how humans have evolved to gravitate towards groups. Groups are very important to humans. Humans like groups because groups give individuals guidance on what moral behavior is. Behaving morally is not something that can be reduced to raw game-theoretic, repeat-play co-operation (as Haidt somewhat pejoratively labels homo economocus); there is just too much behavior that cannot be explained by co-operation. And humans need a group that is small enough to be cohesive and for "morality" messages to be sufficiently proximate in order to make sense, which is why Marxist societies never work. But within groups, norms of moral behavior can be very powerful: suicide bombers, have nothing but morality, and perhaps some family rewards, to die for.

So this brings me back to Clayton Kershaw. Faith is clearly an important part of the Kershaws' life and humanitarian work in Africa. So you could guess there is something of a missionary purpose in their work, but I don't see it. There is no proselytizing that I can see. Faith is not mentioned once in the New York Times article about them two years ago. And African orphans would seem to be only remotely, remotely able to be in a future position to ever help someone who will soon become the highest-paid pitcher in baseball. There is no sense that the Kershaws are helping out members of any plausible group to which they might belong. So if, as Haidt argues, that moral behavior is an evolved human characteristic, what is the evolutionary explanation for the Kershaws' generosity?

It has got to be, my guess, a relic of enlarging groups. Generosity and kindness towards strangers and outsiders seems often to be a tenet of many religions, and there must be a recruitment component to this. But that is a very odd tenet, because so much of the "groupish" behavior studied and documented by Haidt and some of his colleagues, Joe Henrich and AraNorenzayan, focus on smaller, tractable groups. How does the morality of kindness towards strangers fit within a larger set of group norms of morality?

The American Taxpayer, Insurer of Last Resort

No, I am not talking about Ted Cruz's display of heroic idiocy (even by Congressional standards), but I am referring to a more subtle, and bipartisan sellout of the American taxpayer: the potential reversal of National Flood Insurance Program reform, a program that takes in $3.6 billion in premiums but pays out $25 billion (actually the Treasury pays it, which is of course, YOU). This blog does not often link to The Weekly Standard, but this week's piece castigating members of both parties ready to undo last year's reforms is right on the money. Bloated millionaires with beach homes that have been reconstructed several times at taxpayer expense is so outrageous, the economics of it is the least offensive part. This is small potatoes compared to health care, but this is what a Tea Party insurrection should target: the most inequitable, most wasteful, and most immoral wastes of taxpayer funding. For the dismal environmentalist in me, this is not just recurring environmental insult, rebuilding expensive beach homes in sensitive habitat, it is taxpayer insurance against one of the ravages of climate change. Why should I, millionaire beach homeowner, care about climate change if YOU, American taxpayer, will bail me out? Alas, the monosyllabic wing of the Republican Party is more interested in green eggs and ham.

American Agriculture Kills People

It was a busy news week last week for environmental lawyers, with the EPA releasing a proposed rule for regulating greenhouse gas emissions from power plants. But another important release last week escaped attention: the Centers for Disease Control released a report on the causes and effects of antibiotic-resistant bacteria infection in the United States. This is a narrower analysis than an earlier World Health Organization report in 2012 that found 63,000 deaths in the United States and 25,000 deaths in EU states plus Iceland and Norway, resulting from antibiotic-resistant infections. The emergence of new bacteria demonstrating resistance to antibiotics is likely due to the overuse and misuse of antibiotics. The CDC study estimated, conservatively, that over two million Americans become infected each year with antibiotic-resistant bacteria, with 23,000 of them dying each year. That is more than the approximately 21,000 people Americans who lost their lives as passenger-vehicle occupants in 2011.

Why do I say that it is American Agriculture that kills people? Isn't it over-prescription of antibiotics that is causing antibiotic resistance? Former Food and Drug Administration commissioner David Kessler reported in a 2012 New York Times op-ed that 80 percent of 2011 reported antibiotic sales went to agriculture, not human health care. Exactly how antibiotic overuse translates into antibiotic resistance is complicated -- different pathways exist for human and livestock transmission of antibiotic-resistant bugs -- but not that different, and not that complicated.With 80 percent of antibiotic use going to livestock growing, certainly more than half of the antibiotic resistance must be the result of ag use. Actually, a better guess is that more than 80% of the antibiotic resistance comes from ag, because they are applied to livestock in a manner that most contributes to resistance, being administered in low doses. David Kessler's estimate of the percentage of antibiotics destined for animals seems on the mark, with Wired.com reporting the same figure. The CDC report does not estimate the percentage at all, just blandly and lamely stating that "[a]ntibiotics are also commonly used in food animals to prevent, control, and treat disease, and to promote the growth of food-producing animals." Clearly, fear of the bullying ag lobby runs deep.

It is a shame that physicians over-prescribe antibiotics. But at least that is a matter of public health. Antibiotics to promote growth, so that chickens can cost pennies less, at the cost of 23,000 American lives a year, is not a shame, but a national tragedy.

Clayton Kershaw, humanitarian

I digress. I will not only digress from being either an environmentalist or an economist, but I will give you a break from my dismal nature. This post is about my favorite baseball player on my favorite baseball team, Clayton Kershaw of the Los Angeles Dodgers. Kershaw is not only having a remarkable (even for him) season, with his ERA at 1.92 more than a quarter of a point ahead of Jose Fernandez of Miami, he is receiving awful run support from his team (3.6 runs per start 68th out of 88 pitchers), something he has never complained about. He  seems to be embarking upon a string of success that has him being compared to Sandy Koufax during his unmatched six-year run. Taciturn Joe Torre glowed about Kershaw: "He's always learning something." Kerhsaw's perfectionism no doubt drives his success as well as his humility.

But Kershaw is not my favorite player because of the way he carries himself as a professional and a baseball player. In 2012, Kershaw became the youngest recipient of the Roberto Clemente award, given to the baseball player that has distinguished himself as contributing to society outside of baseball. This year, he received the Branch Rickey award, also in recognition of his humanitarian work. In 2011, Kershaw's wife Ellen convinced him to go to Africa with him to help in her cause, to help Zambian children orphaned by AIDS. To hear her tell it, between his relentless pursuits to get pitching and training in during the trip, he became wholly engrossed in the cause of helping these children. Kershaw has continued his work with Arise Africa, as part of his Kershaw Challenge fundraising efforts. Most recently, he hosted a ping-pong tournament, in which many of his teammates took part.

If you're dismal, this is a puzzle: why does the best young pitcher in baseball (who still wants to lead in the grueling race to be still better), devote as much time and effort as he does to helping orphaned African children? It's not even as if he is doing something that has a remote chance of ever redounding to his benefit: he is not helping out a teammate, a baseball player, an Angelino, or even an American. The Kershaws are not helping people in any "group" that they would conceivably be a part of. If the Kershaws had never happened upon the cause of helping African orphans, they would be no different.

If you're not dismal, then you can just enjoy this bit of philanthropy inside professional baseball, which very much needed a story like this.

Milton Friedman is Dead, Long Live Milton Friedman! Rand Paul doesn't know that Milton Friedman died seven years ago

Kentucky Senator Rand Paul is often mentioned as a Presidential candidate, and he is clearly and actively campaigning despite his official line that he is not yet running. He is starting to realize that he has to also be, in addition to fiery and opinionated (on Secretary of State Hilary Clinton, "If I had been president...I would have relieved you of your post.") somewhat knowledgeable to be President of the United States. He took a step backward on that score, in a recent interview on Bloomberg News, when asked by Joshua Green on who his ideal Federal Reserve Chairman would be:

Green: Who would your ideal Fed chairman be?
Paul: Hayek would be good, but he’s deceased.

Green: Nondead Fed chairman.
Paul: Friedman would probably be pretty good, too, and he’s not an Austrian, but he would be better than what we have.

Green: Dead, too.
Paul: Yeah. Let’s just go with dead, because then you probably really wouldn’t have much of a functioning Federal Reserve.

I know, I'm an economist, and Friedman is, even if many economists disagree with him, still an economic icon. But if someone is running for President, a self-proclaimed student of Hayek and von Mises, that person should know that the great American icon of limited government, Nobel Laureate Milton Friedman, is dead! Paul not knowing that suggests to me that he is still getting his economic advice from non-economist, ideological, political hacks. Not good for someone who seeks to lead the largest economy in the world.

By the way, as a native New Jerseyan, I have to boast that Friedman was also a native of the Garden State: a 1928 graduate of Rahway High School, and a 1932 graduate of Rutgers University.

Do you want to pay a carbon tax or a higher tax?

On Tuesday, President Obama announced that he has ordered EPA to develop a new set of greenhouse gas emissions regulations for power plants, which commenters have guessed might actually mean power plants and other emitters as well. Certainly, it will include new and existing power plants (which have never before been even discussed as a target for greenhouse gas regulation), and my guess it that the EPA will have its hand plenty full without trying to expand its list of enemies.

As I have continued to stump for a carbon tax, it has become clear that messaging has to be directed at politicians that do not believe climate change is actually happening. There are plenty of Republicans and fossil-state Democrats that say they don’t believe the science is settled, but don't believe it, but do feel like they cannot antagonize Tea Party voters that will punish heretics. The new stump speech has to be oriented at providing cover to those who know a carbon tax is the right thing, but are afraid of a challenge from Tea Party candidate who is adroit enough to avoid use of the word "rape" in a sentence.

Part of my new stump speech is this: the Clean Air Act is not going away. The Obama Administration has set a timeline that will pretty much ensure that regulations will be in place by the time he leaves office. The key to that is the deadline June, 2016, by which date states will be required to submit their State Implementation Plans required under section 110 of the Clean Air Act. After that, you can bet that the new EPA regs will be here to stay.

President Obama did not reveal any details of what the new regulations will look like, a bit of a disappointment to environmental organizations. But it is clear that the new regulations will include a New Source Performance Standard for new power plants and a regulation for existing power plants as well, the latter being the most controversial part. The new regulation will be a rate standard, requiring that power plants emit no more than a certain rate of emissions per Megawatt-hour, and most watchers believe that the standard will be something like 1,000 pounds of carbon dioxide per Megawatt-hour. There will also likely be a threshold emissions amount, below which a power plant would not be regulated, and if the tailoring rule is any indication, that threshold emissions amount be 25,000 tons of CO2 per year. If all of the above turns out to be true, then there will be approximately 1,000 power plants that will have to do something to comply with the regulation (plants that emitted at least 25,000 tons of CO2 and emitted CO2 at a rate of more than 1,000 pounds per Megawatt-hour.

Interestingly, the President said he has directed EPA to make use of market base instruments in implementing the new rule. What that means is unclear, but it is probably not cap-and-trade, since that is likely not authorized by the Clean Air Act. It could involve some other form of emissions trading, such as allowing permits to be bought and sold to enable individual emitters to comply with the regulation.

How might that work? It is not unprecedented, as EPA had, earlier in its history allowed trading to achieve compliance. EPA's bubbling policy did not seem to offend any legal strictures under the Clean Air Act.

My guess is that the policy will involve emissions trading, but not cap-and-trade, at least not in form. Firms emitting over 25,000 tons of CO2 will have to get their emissions rate down to 1,000 pounds per Megawatt-hour, and they will be able to buy credits to meet that. That is, the emissions rate, measured over a year (that is my guess as to the relevant time period that EPA will set), is just the calendar year emissions divided by the electricity generated during that same calendar year. If a plant emitted 25,100 tons of CO2 in a year, and generated 50,000 Megawatt-hours of electricity that same year, its CO2 emissions rate would be 1,004 lbs/MWhr, over the limit by 4 lbs/MWhr. It cannot "buy" 4 lbs/MWhr, but must instead buy the 100 tons worth of credits necessary to get its rate down to 1,000 lbs/MWhr. My guess is that an emitter would be allowed to buy the credits to get it below 25,000 tons for a year and therefore out from under regulation altogether; that could potentially allow some small but super-dirty emitters to continue to operate for a relatively small tax.

Oddly enough, this could, under some perfect market assumptions, amount to something like cap-and-trade after all. If we assume that there are no transaction costs, and we assume that there will be trading as long as the price of credits is greater than zero, then this program amounts to cap-and-trade. Here is why. Just imagine now that the CO2 emissions and electricity produced from 2009 are fixed, and will be the same in some future regulated year, say 2018. In 2009, there were 1011 plants that emitted over 25,000 tons of CO2 and at a rate exceeding 1,000 lbs/MWhr; 483 below that rate. The total emissions from those 1,493 plants was 2,395,790,827 tons, or about 2.4 Gigatons, or about 4.8 trillion pounds of CO2. Total electricity generated by these plants was 2,777,582,189 MWhrs, for a total, 1493 plant-wide average of 1,725 lbs./MWhr. Something's gotta give in order for all 1493 of these plants to get to 1,000 lbs./MWhr. Some will have to cut back, some will switch to gas, and some will use carbon capture and storage (maybe), but there cannot be enough buying and selling to get everybody under 1,000.

If we assumed that no plant became more efficient in terms of CO2 emissions per MWhr, and we assumed that the exact same amount of electricity produced in 2018 as in 2009, then it would be a straight cap-and-trade with the cap at 2,777,582,189 MWhrs x 1,000 lbs = 2,777,582,189,000 lbs, or 1,388,791,095 tons. That's a reduction of about Gigaton off a baseline of 2.4 Gigatons.

But here is the catch, and it is the big one: if combustion can be made less carbon-intensive, then there could be an increase in emissions. Imagine a natural gas-fired power plant in emitting below the 1,000 lbs/MWhr rate (natural gas-fired power plants generally do) and generating electricity. Such a plant would have excess credits to sell. What if it doubled in size? Then it would have twice as many credits to sell. It could then turn around and sell those credits until its rate creeps up to 1,000 lbs/MWhr. Notice that nothing in this scenario happened except one natural gas-fired power plant doubled its capacity, and all of a sudden the cap is looser.

This has been just an exercise. There are lots and lots of rules and adjustments that EPA would make, many of them to address the problems highlighted by this blog entry. We have seen a lot of them before in the Clean Air Act Amendments creating the sulfur dioxide cap-and-trade program. The upshot is that this is going to be a very complicated piece of regulation, putting a lot of lawyers to work. As a law professor, I guess that is good news. For the rest of you, it is a tax.

Now, does a carbon tax start to sound better?

Fishing in Massachusetts, Coal-mining in West Virginia

Ed Markey, the climate activists' putative hero, is running for the Senate seat vacated by the new Secretary of State John Kerry. People always think Massachusetts people are strong environmentalists. Even Republican governors William Weld and Mitt Romney (as governors) enjoyed respect from environmental quarters.

Is it really true that the people of Massachusetts are so much more environmentally enlightened than the rest of us? Recently, Massachusetts Attorney General Martha Coakley (remember her? It was her race to lose to replace Ted Kennedy, and sure enough, she lost it to Scott Brown) sued the National Marine Fisheries Service over severe reductions in catch limits for cod, haddock and flounder, because they failed to recover as much as had been hoped.

Why do you think that the stocks did not recover? Could it be that the fishermen-dominated forecasts made by the regional fisheries council might have been overoptimistic? No, it couldn't be that. It is just an invidious and "callous disregard for the well-being of New England fishermen" that will lead to the "extinction of an industry that for more than a century has been a part of the commercial and social fabric of New England...."

According to Coakley, the new limits are based on "shaky science" and "fail to consider economic impacts on fishermen." Shaky science -- sounds like the climate deniers from the hills of West Virginia. Is this just Coakley, never the sharpest knife in the drawer? Well, John Tierney (D-MA) says "NOAA has pushed through this regulation and put our historic fishing industry at risk." Democratic governor Deval Patrick supports Coakley's suit. It was Tierney and Barney Frank, remember, who called for NOAA Administrator Jane Lubchenko's resignation because she sought to lower catch limits. Of course Tierney and Frank know more about fish stocks than Lubchenko, an accomplished oceanography professor.

And Ed Markey, the environmental savior running for Senate? Earlier this year, Congressman Markey lobbied hard to get NOAA to allow fishermen to carry over unused quota from 2012 to 2013. Why didn't fishermen catch as much in 2012? Perhaps there weren't enough fish left to chase. Undaunted, Markey lauded "[t]hese steps will soften the current economic blow for Massachusetts fishermen, but we still have a great deal of work to do if we want to help our fishing communities survive."

This questioning of the science, this political attacking of anyone who threatens your marginal industry, looks a lot like climate deniers from coal regions. But you can understand sort of understand, in a cynical way, why politicians from West Virginia line up against climate change. There really isn't a lot else going on economically in West Virginia. But why does the Massachusetts delegation always go to bat so hard for their fishing industry, an industry that has long past fished itself into oblivion?

On Fracking, the Obama Administration, and Climate Change

Greenwire reported recently that Rep. Rush Holt, a physicist and a Democratic Congressman who represents the district in which I grew up in New Jersey, has complained that the Obama Administration's disposition to hydraulic fracturing, or "fracking" on BLM land is overly generous to the oil and gas industries. He has a point. The federal government may lack the jurisdiction to do much regulating of fracking on non-federal lands (see work by my FSU colleague, Hannah Wiseman), it certainly can require firms on fracking on federal land to comply with construction standards and disclose fracking fluids. A rule released last year for fracking on BLM lands was withdrawn after industry complaints that it was going to be too costly. Really? A seminar paper written by one of my law students, Kaitlin Monaghan, dissected the cost-benefit analysis undertaken by the BLM in arriving at its rule. She found that the cost-benefit analysis was fundamentally biased against environmental values. In the analysis, the BLM assumed that the environmental benefits of regulating -- of either/both requiring construction standards and disclosing fracking materials -- consisted of the costs of, in a "low damage" case (only contaminating one or a few wells), just the cost of drilling a new well. In other words, the BLM assumes that it would be costless to leave for dead an existing water well, as long as it was "small." In a "high damage" case -- extensive contamination of a large aquifer or other groundwater source -- the BLM assumed that the cost was remediation of that water source. Missing from that benefit accounting is the harm that would occur between the time of actual contamination and the completion of the remediation. Would people be harmed by consumption of that water in the meantime? Would there be any interim loss of use by farmers or other water users? Would there be any ecological harm in the meantime? The BLM's answer would apparently be "nope."

I've often wondered, beyond Dick Cheney's "Halliburton exemption" if the Obama administration really was a little too sweet on fracking. Why would that be? My guess is that with the failure of Congress to pass federal greenhouse gas legislation, with failing efforts to construct any meaningful international regime, and with the reality that even if the United States manages to reduce its reliance on coal (not a done deal) other nations may not (the European Union has seen an uptick in coal consumption), the Obama administration has quietly decided that natural gas is the carrot they will offer other countries to reduce their greenhouse gas emissions. Combustion of natural gas emits about half the carbon dioxide per unit of energy produced as does coal, and has been frequently, sometimes over-enthusiastically, as a "bridge fuel." So, if you can't get China to reduce its carbon footprint using sticks, how about using carrots? Instead of futilely browbeating the Chinese into weaning itself from coal, why not export cheap natural gas? In the United States, the fracking revolution has accomplished what decades of political fighting has not -- induced electric utilities to switch from coal to natural gas. Fair enough, but there are limits to the carrot approach. Coal is already pretty cheap, so introducing natural gas as a cheaper fuel has its limits. There is always this pushing-on-a-string problem with trying to induce desirable behavior through carrots instead of sticks.

Boxer-Sanders Carbon Tax: Revenue Projections and Emissions Reductions

Senators Boxer and Sanders claim that their Climate Protection Act of 2013 bill would raise revenues of $1.2 trillion over five years. The bill starts a carbon tax at $20 per ton of CO2, and increases by 5.6% each year for ten years, where it settles at $32.65 per ton. That's not a very high tax, translating to about 30 cents per gallon of gasoline, assuming the current blend of ethanol. But where do the revenue numbers come from? Senators Sanders and Boxer, the co-sponsors, say that is a CBO estimate.

I could find no such CBO study, so I decided to try and re-create the numbers. The carbon tax does not adjust for inflation, so we have to discount future revenue collections from the carbon tax. I assumed a constant discount rate of two percent. One also has to assume a carbon elasticity -- the percentage change of GHG emissions to the percent change of the price of carbon. We don't know that, but there is a lot of research on energy elasticities, and the long-term response is usually somewhere just south of 1. I assume 0.8. It is adventuresome to assume that it will stay constant over a long period of time and range of prices, but I see no principled way to adjust for many uncertainties.

What is the cost of energy? In order to calculate the price effect of a carbon tax, we have to know the baseline energy cost on top of which the carbon tax sits. I average two approximately equal contributors to GHG emissions: electricity and motor vehicle emissions. The average cost of a kilowatt-hour of electricity in the United States is currently 11.53 cents. The average CO2 emissions for a kilowatt-hour of electricity in the United States in 2007 is 1.363 lbs. So for one ton of CO2 emissions, 1467 kilowatt-hours of electricty are produced, which cost an average of $169.

What about motor vehicle emissions? The average price of gasoline in the United States for 2012 was $3.62 per gallon. The average emissions per gallon of gasoline was 8,887 grams of CO2, and 10,180 grams of CO2 for diesel, in 2011. The ratio of diesel to gasoline consumption is fairly stable, and in July 2011 approximately 110,000 gallons of diesel were supplied and approximately 250,000 gallons of gasoline were supplied, so about thirty percent of all motor vehicle fuel is diesel. So in calculating a weighted average of emissions, it seems reasonable to say that the weighted average of vehicular emissions is

           0.30 x 10,180 + 0.7 x 8,887 = 9275 grams, or 0.010224 short tons per gallon

So the average cost of emissions from motor vehicles was about $3.62/0.010224 = $355.

Let's just assume that the average cost of emitting in the United States the average of the cost of emissions for electricity ($169 per ton) and the cost of emissions for motor vehicles ($355 per ton). In 2010, electricity accounted for 34% of all GHG emissions, and transportation 27%, so that's not far off. These are in effect the base cost of emissions, against which a percentage change in price will be measured. In other words, the carbon tax is only a number that sits on top of these baseline costs.

I assumed emissions from 2011 numbers, estimated by EPA, of just CO2 and CH4. That was  5604.9 Tg of CO2 and 582.1 Tg of CO2-eq of methane. The total in 2011 was about 6820 Mt CO2-eq.

Now, just to make this back-of-the-envelope calculation, I assumed that about half of all emissions come from electricity and half come from motor vehicle emissions. I calculated the revenues collected from emissions from both elements, assuming that emissions will respond to the carbon tax. Because the baseline cost of gasoline is higher, a carbon tax creates a smaller incremental price increase in the cost of gas, and would therefore figure less prominently in gasoline users' consumption decisions. In short, we should expect less of a response to a carbon tax in vehicular emissions than we do for electricity emissions.

Under these assumptions, carbon tax revenues would be about $127 billion in the first year, and with a discount rate of two percent, would rise to $199 billion in year ten. The discounted flow of revenues would indeed be about $1.243 trillion.

What about emissions? This is the disappointing part. Assuming a constant carbon elasticity of 0.8, total emissions will only fall from 6820 Mt to about 6101 Mt, a 10.5% decrease. That's not very much.

A Starting Point for Climate Change Adaptation: Get Rid of FEMA Funding for Natural Disasters

I know that sounds drastic, but what is it exactly that *requires* federal government involvement in disasters, really? Is it the scale? Is that we just don't believe that the states of New York or New Jersey can actually afford to pick up the pieces after Hurricane Sandy? Maybe that's not fair, would a state like Louisiana be unable to survive another category 3, 4 or 5 hurricane? Or South Carolina?

Maybe they can't. Maybe they shouldn't. On an NPR show a couple of months ago, 0n a call-in show, a South Carolina resident expressed his love of hurricanes. He said he and his wife were surfers, and they live for the big waves produced by tropical storms. He said they save up vacation days to surf.

I wish I were the guest speaker on that show, because I would like to have dispensed the shame that caller deserved. The US government is in a constant state of fiscal crisis (due in no small part to the Tea Party contingency from that caller's home state of South Carolina), we are cutting back on defense, school lunches, environmental protection, and this surfer dude and his wife want taxpayer dollars to keep rebuilding houses and roads to barrier islands in South Carolina so they can surf.

In graduate school, one of my professors was conservative economist Thomas Hazlett. As one of Rush Limbaugh's closest friends, he frequently found students disagreeing with him. But Professor Hazlett and I found convergence once. After yet another wildfire in Santa Barbara that torched scores of multiple-million-dollar homes, a TV news reporter was interviewing a Santa Barbara resident, a woman who, in her time of distress was wearing some animal fur clothing and carrying a toy dog in her arm, bemoaned, "this is the third time that my house has burned to the ground on this very spot!" Professor Hazlett's reaction: "NO! Really? Do you think it's a coincidence??"

There is no reason that Joe the Plumber should be paying for the reconstruction of a [now] three-million dollar home in Santa Barbara, or for some South Carolina surfer dude's home so he and his wife can surf. But more to the point of this post, many have properly asked, "why should taxpayers pay to rebuild vulnerable structures and neighborhoods in New York and New Jersey in the wake of Hurricane Sandy?" Why, indeed? 

One of the simplest, cheapest, and most sensible adaptation measures to prepare for climate change is to recognize the increasing danger and cost of storms, and to relocate infrastructure and structures away from harm's way. What stands in the way? The stubborn determination of people to not let Mother Nature defeat them.... with the assistance of the US taxpayer, of course.

Because of the politics of disaster relief, a date certain should be set after which no FEMA money  and no federal monetary assistance of any kind should be provided to victims of natural disasters. Setting a date certain will defuse the accusation that relief will be withheld for political reasons.

Without FEMA funding, we'll see who really is resolved to stay put in harm's way. Without FEMA funding, it will be up to states to determine whether they will assist those harmed by natural disasters. And states, already tight for money, will have to choose. In a way, getting rid of FEMA is a way of bringing markets to bear on climate adaptation. If FEMA funding for natural disasters goes, then we will see the value of barrier island homes plummet. And that South Carolina surfer dude will really be bummin.'